From the Experts: Wage and Hour Issues, Under the Covers

Several years ago, an executive based in Europe saw a news story about Dukes v. Wal-Mart, the monster class action involving every female worker at the retailer. Dukes was gutted by the U.S. Supreme Court in 2011, but it served as a wakeup call to the CEO, who recognized no discrimination in his ranks but understood that a shortfall of females or other protected classes at the executive level could provide fodder for a nationwide Title VII claim. He set about to have outside counsel review the situation. He slept better.

But in the meantime, plaintiffs’ lawyers had mobilized on a different front: They seized on potential wage and hour violations implicating 50,000 of his U.S. workers and going back three years. These violations would not require plaintiffs to prove intent—always a tough battle in a discrimination case. No, in a wage and hour case, the burden of proof would be on the employer.

In years past, employment attorneys focused on discrimination and harassment litigation. Few devoted time to work on wage and hour issues, which involve arcane federal regulations, U.S. Department of Labor opinion letters, and state laws that often impose stricter labor laws.

Then, the employment law landscape began to shift. By way of example, in 1998, one of the first nationwide wage and hour class actions alleging misclassification of IT workers was filed. That case involved workers who, on average, made in excess of $100,000 a year and who were so sophisticated in their work that one computer giant literally called them for solutions. The exposure was potentially hundreds of millions of dollars.

That company’s in-house counsel infiltrated a plaintiffs’-only seminar that year. What he found was eye-opening. A prominent plaintiffs’ law firm, which had previously done discrimination and harassment work almost exclusively, had found fertile ground: wage and hour violations—violations that exist at virtually every employer in the country and that require no proof of intent by plaintiffs’ lawyers. In fact, the burden of proof is on the employer to prove compliance with myriad wage and hour laws. The law firm had switched its practice from 80% equal employment opportunity and employee civil rights, to 80% wage and hour class actions.

So for the past ten years, employment litigation has shifted from the emotionally charged world of “he said/she said” and disparate impact, to the more sanitized land of overtime records, vacation pay calculations, meal period compliance, and job descriptions. While the European executive was focused on discrimination issues, wage and hour infractions were actually a greater threat.

The international executive’s company was never sued in a Dukes-type case, by the way. No, the plaintiffs’ lawyers went for the low-hanging fruit of wage and hour violations. What resulted was a pitched battle over “boot-up time,” i.e., how long it takes a worker’s computer to turn on and if that’s compensable work time. Hundreds of thousands of records were exchanged; experts were retained; calculations were run. A settlement was reached using one of a handful of mediators who specialize in wage/hour disputes and who can earn as much as $20,000 a day for their efforts resolving these bet-the-company cases.

Bet the company? Seriously? Sure.

Companies have settled wage and hour cases for tens of millions of dollars. For example, in one case, securities brokers, claiming they were misclassified as exempt workers and therefore denied overtime, secured a $90+ million settlement. In another, computer engineers and other IT workers agreed to resolve a class action for a $60+ million payout. Why settle for such exorbitant amounts? Because you don’t want to get tagged with a judgment of more than $200 million, like the insurance company that was found to have misclassified its claims adjusters.
So what should keep you up at night—or the person you pay to handle such things? Where is the low-hanging fruit in your company?

Misclassification of Exempt Workers

In industries such as financial services, information technology, insurance, pharmaceutical sales, and retail management, attacks usually come in the form of “misclassification” claims by “exempt” workers. The law presumes that all workers are entitled to overtime and minimum wages. That is, unless they are classified as “exempt” from such laws.

Historically, employers relied on the so-called “white-collar exemptions” and regarded anyone getting paid a salary and carrying a briefcase as exempt. But the exemptions—for “executives,” “administrators,” “learned professionals,” “computer professionals,” etc.—are not easily interpreted and are impacted by recent case law and changes to state and federal regulations.

Plaintiffs’ class action attorneys have been exploiting the ambiguities in the law with regularity, filing misclassification class actions on behalf of stockbrokers, mortgage bankers, pharmaceutical sales representatives, and insurance agents. If your company has relegated the assignment of classification reviews to the payroll department or low-level HR generalists, chances are very high that you have misclassified workers. This likely means that the company has failed to pay overtime for entire groups of workers, extending back several years. If the workers are highly compensated and there are lots of them, overtime alone can be in the tens of millions. There may be other exposure for common-law breach of contract claims and penalties.

Off-the-Clock Work